Your Slice of the Pie Part II: When Do You Get Paid?

I haven't written anything about comics in a few weeks because I've been working on creating a independent artists merchandising platform (See Do You Want to Create Merchandise for Your Comics? ). I'm still testing the feasibility of that business, but I'd like to take a break from that and discuss the ways time impact a contract. This essay will focus on the most important short term impact; the time it takes for you to be paid.

Payment Timing

The most important thing to understand about working with a publisher is that payments are traditionally paid in lump sums at specific periods during the year. For instance, let's say your publisher reports sales on a quarterly basis (4 times per year) and pays royalties thirty days after each reporting period. Let's also assume that your new book hits the stores on January 1, 2014. This means that you'll see your first report on March 31st, 2014 (or the first business day after that) and the earliest that you'll see the first check is April 30, 2014. Payment cycles can be monthly, quarterly, bi-annually or annually. The rise of online sales can speed up the reporting process to almost real time, but the publisher might still delay payment for various financial reasons.

Not So Fast

Keep in mind, the earliest point where you might get paid won't always be the day you get the money. There are several factors that contibute to payment delays that have nothing to do with negative intentions from the publisher. A delay in payment can occur:

• if the publisher pays you any advance prior to the release of the book (See Your Slice of the Pie Part I: Net and Gross Profit). In this case, you won't be paid until your percentage of royalties exceed the money you were given up front.
• if the cost of producing the book and deducted from the gross sales exceed the actual sales, then you won't get paid until sales exceed costs (See Your Slice of the Pie Part I: Net and Gross Profit)
• if the publisher only pays royalties after a certain threshold is reached (normally $50 or $100) then you won't be paid until the pay cycle where your share of the royalties crosses that threshold

Watching the Clock

When you are thinking about the practical effects of payment timing there are two things to keep in mind. First, don't expect to see immediate payment for a new book unless there was an advance up front. Very few independent artists rely on just creator owned book sales to make a living, but it's worth pointing out that you don't want to count on paying February's rent with the money from January's book sales. That money might not come until April or May. The solution to this is to supplement your creator owned income with work for hire gigs (See Entertainment Contracts 101: Creator Owned vs. Work for Hire) that at least in theory are paid much faster.

The other thing you want to avoid is forgetting about your royalties entirely. In some extreme cases (large deductions from gross, annual reporting and rolled over payments), years could pass before sales reach a point where you start to collect royalties. In the majority of cases, the publisher will just send you the money even if you don't keep track. This is a nice surprise (the industry equivalent of finding money in the pocket of an old coat) but you don't want to get into a situation where you forget and the publisher forgets and you never get paid for your work.

While I often advocate for creators to negotiate changes to their deals, payment timing is something you need to understand not try to negotiate. The payment systems of most publishers are tied to their accounting systems and their overall business operations. It is worth asking for a change if the publisher seems flexible, but unless you are Stan Lee most creators will not be in a position to get this change (See David vs. Goliath: Negotiating Power in Comic Contracts). The best option you have is to set up some kind of long term reminder of the payment terms of all your books at the beginning of the deal.

Now that we've explored the short term effects of time on creator owned deals, next week I plan to look at the long term effects of tying up intellectual properties and the not so philosophical concept of eternity in the comic book business.

If you have any questions, please feel free to ask.

Have fun.
Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 atgamalhennessy@gmail.com FOR A FREE CONSULTATION.

Get What You Give (Rights and Revenue for Creators)

By Gamal Hennessy

A contract is basically an agreement between one or more groups for the exchange of resources. The exchange could be time and skill for money, goods for services, property for future gains or any combination of those things. The best agreements exchange roughly equal resources. The worst ones have one side trading large amounts of resources for little or nothing in return.

This is the problem that artists run into with many of the contracts that I see. The most important service I provide is showing my clients what they are giving up in comparison to what they are getting. I’d like to provide an overview of the different types of rights and revenue streams as a general overview for creators looking to get their projects into the market.

Types of Rights

As discussed before, copyright law gives the creator of an original work the right to benefit from the distribution of that work. There are various types of ways currently available for creators to exploit their work, especially when we consider comics. Some of the major distribution methods include:

• Publishing (Print, novelization and Digital)
• Public Display (gallery displays and public performances of some of the methods listed here)
• Theatrical (Movies whether live action or animated)
• Television (including network, basic cable, premium cable, PPV whether live action or animated)
• Home Video (including DVD, Blu-Ray, etc.)
• Live Performance (including Broadway performances and theme park performances)
• Interactive (including console computer or mobile video games)
• Merchandise (as discussed in last week’s post)
• Audio (soundtracks and audio novelizations)

As new forms of distribution are created, new rights are created for the artists. These rights are universal, but they can be divided or carved out by geographic area, time frame, distribution channel, language and other factors. (This division can be complicated, so I’m going to save that for another post)

Types of revenue

Just as there are different rights that creators can use to get their work into the market, there are various ways that they can be paid. Creators need to focus on three ideas:

• A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
• An advance is paid before the work is finished. For example, a writer of a novel might receive money up for her novel based on the proposal not the finished product.
• A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.

These are broad revenue concepts. They are often altered and refined by concepts like gross, net, recoupment, offsets and other variables. (This is another complicated subject that I can talk about later.)

Choices that Artists Must Make

In certain creative circles, the types and amounts of revenue are fairly straight forward. Writers for some mediums often get an advance. A work for hire artist for comics often gets a page rate. There is more confusion for creators pursuing creator owned deals. There is often no advance, no MG and a blanket royalty rate for all forms of distribution. This puts them creators in a dangerous position since the lack of up front money and the uncertainty of any profitable sales in the future means that the creators are really working on spec while at the same time giving up all their rights to their property.

From the publisher’s perspective, it is understandable why they would take this stance in their contracts. Publishers protect themselves from risk by limiting exposure to projects that might not be financially viable. At the same time, they maximize their potential gain by securing as many rights as possible for projects that are financially viable. Artists need learn the same lesson. They need to counter the publisher’s position by attempting to limit the rights that a publisher gets for projects that are financially viable and maximizing revenue for every project they do.

I know negotiating power is often limited for artists. But having a clear understanding of the relationship between revenue and rights and clear goal of where they want to go can help maximize their limited negotiating power and increase their chances of success.

Best

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT gamalhennessy@gmail.com FOR A FREE CONSULTATION.

David vs. Goliath (Negotiating Power in Comic Book Contracts)

By Gamal Hennessy

When I analyze contracts for my clients, I point out all the language in the agreement that has been written to favor the publisher. I point out all the ways that contract clauses are used to limit their control over their work and their ability to make money. I offer them suggestions on how to make the contracts more equal and level the playing field. But I am aware that the terms of most of these deals will never be changed. As a comic book creator, you often must deal with the reality that you have little or no negotiating power relative to a publisher. Taking this fact into account will help you make decisions about what deals you will or will not get into and help you understand how they will impact your career.

Scarcity Breeds Power

Publishers have to take the financial risk of releasing an unknown and unproven book. In order to mitigate this loss and to give themselves the potential for substantial revenue and control on the back end, many of them incorporate biased language into their contracts. Many creators sign those contracts because of their lack of power.

It is easy to understand why comic creators normally have very little negotiating power. It boils down to supply and demand and market scarcity.

• The publishers currently corner the market on supply. They control the means of production (printing) and direct distribution (comic shops, bookstores, online and digital) and often control secondary distribution (merchandise and media licensing)
• The number of comic creators who want to gain access to the publishers supply is massive compared to the number of publishers. Who knows how many potential artists and writers are out there dreaming of getting their books in print, movies and games?
• The scarcity of publishers relative to the abundance of creators produces a situation where publishers can afford to offer one sided deals. Every unknown creator who demands a superior deal can be rejected by the publisher because there are ten or twenty other creators willing to accept an inferior deal. Since the publisher is primarily looking for books to fill their publishing plan, one unknown book is just as valuable as any other from their perspective.

Options for Creators

In light of the reduced negotiating power that undiscovered creators have, does it make sense to push for a bigger deal for a creator owned project or page rate? Yes and no. While you might not be able to wrestle a six figure advance out of Marvel, there are options you can pursue to make the most of your work.

• Establish your reputation in the industry by taking on work for hire projects that will get you exposure for your skill without exposing the characters and story lines that you are saving for a creator owned work.
• Find a more flexible small press that will offer more reasonable terms for new creators.
• Explore self-publishing if only to increase your name recognition in the market.
• Accept the biased deal as a means of name recognition.

While none of these methods is a quick road to fame and fortune, they can boost your negotiating power over time. An unknown creator has almost no leverage with a publisher. A creator with a following who represents tens of thousands of copies sold per month can command lucrative exclusive contracts, back end participation deals and creator owned contracts that give them considerable revenue and control potential. The best analogy is the contract situation in professional football. As a player, you may not make very much on your first deal but once you prove yourself as a marquee player, your subsequent contracts can be huge.

Need to Understand Your Agreements

Whether you make the choice to accept a one sided deal, negotiate better term or walk away, you need to understand what the terms are for the deal you are being given. It might make sense to take a bad deal now if it will boost your career later. The key is making an informed decision about what you are doing. Whether you decide to use a service like mine or not, knowing what you are signing and why is key to building and leveraging your negotiating power.

Best

Gamal Hennessy

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 at gamalhennessy@gmail.com FOR A FREE CONSULTATION.

All for One and One for All (Collaboration Agreements in Comics)

by Gamal Hennessy

Most of the contracts I deal with are between an artist and a publisher. I take the publisher’s standard contract and explain it to the artist in language they can understand so they know what they are getting into, for better or worse. What clients don't normally ask me to do is is create agreements between the artists working on a creator owned book that define their relationship with each other. What they often don't realize is that this type of contract is just as important as the one between the artist and the publisher. Without this type of agreement a otherwise successful partnership can lead to misunderstandings, conflict and disputes down the road that can be just as costly as any disagreement with a publisher.

Keeping the band together

Comics are like movies, films and theater because they are artistic works that are normally created through a collective effort. While there are some creators who do everything, most books are created by the continuing collaboration between the writer, artist, inker, letterer and colorist. In the same way that a band combines the talent of each instrument to make music, a creative team comes together to make comics (even if they only come together in a cloud server that they upload the work to).

Just like a band or a movie crew; each member of the team should know what he or she is getting out of any deal that involves the property they work on. This might not be significant when you are selling a couple hundred books a year on your website and losing money on the cost of production. This becomes a huge issue when a property is picked up for a film, TV show, video game or merchandise deal. It helps to have all the issues squared away before Hollywood starts calling. If you wait too long, anger, resentment and actual litigation could tear the team apart just when things start to take off.  That is where the collaboration agreement comes in.

Putting the ducks in a row

A well drafted collaboration contract contains six elements:

1. Who is responsible for creating each element of the property
2. How is the copyright for the property going to be distributed between each creator
3. How will the revenue be distributed between each creator
4. Who has decision making authority for the property
5. Who is the primary contact for the property
6. What happens when someone leaves the creative team

While the contract can be overly complex with just these elements, the best ones address these issues without a large amount of legal gymnastics. At the same time the elements of a collaboration agreement should not conflict with the terms of any agreement with a third party publisher or licensee of the property. Your legal advisor can review both contracts to ensure there is harmony between them.

Other options

Of course, there are cases where only one or two of the artists on a book will actually own the copyright and the other participants may participate on a work for hire basis. Also there are some instances where the creative team actually forms a separate company to manage and exploit the property. In those cases, as with the collaboration agreement described here, a contract should be in place before any work is done to protect the rights of each artist in relation to each other as well as to a publisher.

Have fun.

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.

Entertainment Contracts 101: Creator Owned vs. Work for Hire

In the creative marketplace, one of the first things that an artist needs to learn is the difference between a license agreement (often referred to in comics as a creator owned agreement) and a work for hire agreement. These are fundamentally different animals and signing the wrong one at the wrong time could be devastating to your future.

Definitions:

A work for hire (WFH) is an agreement where you offer your creative services to intellectual property that you do not own in exchange for a fee.

A license is an agreement where you give someone else the right to distribute your intellectual property in exchange for various types of payments.

Example:

WFH: You are an artist. Marvel Comics hires you to draw an issue of Spider-Man. You do the pencils. They give you money.  You walk away. You don’t own Spider-Man. You don’t even own the pages you created. Your name will appear as the artist, but that’s as far as it goes. This is pure mercenary work.

Creator Owned License: You are an artist. You have an idea for a new story. Dark Horse likes it and gives you a CO deal. You create the book. You might even eat the cost of creation. They sell the book. You get a cut, they get a cut. When you walk away, you walk away with the property. You can do whatever you want with it because you own it.

Historical Example:

Frank Miller offers one of the best examples of the difference between these two types of deals. In 1986, Miller signed on with DC to release the Dark Knight Returns. That book reanimated the Batman franchise, solidified a darker vision of comics across the board and was instrumental in redefining the genre of super hero movies. But at no point could Miller claim to own Batman. He had no rights to any of the subsequent film, video game or merchandise revenue that came out of the Batman property. To the best of my knowledge, he got a page rate and he got credit for doing the work. That’s it.

Actually, that’s not it. Because he got so much exposure and critical acclaim for the work he did on Batman (as well as other properties) it was much easier for him to land creator owned deals later on. Frank Miller owns most if not all of the Sin City and 300 franchises. He had major input, control and license fees from those books and subsequent films. That was money he was entitled to because he owned the rights to that intellectual property.

Take Away

There are several successful writers and artists who have done work for hire deals first to establish themselves in the industry and then done creator owned deals once they had the right leverage. Many of them jump back and forth from one type of deal to the other depending on the project. Jim Lee, Todd McFarlane and Greg Rucka are all good examples of this. I’m not suggesting that an artist should never sign a WFH. I am suggesting that you need to know the difference between the two and make sure you are not signing a WFH for your own property because then you are signing away all your rights for little or no money.

And keep in mind, just because a contract says Creator Owned Agreement or License Agreement on the top doesn’t make it a creator owned agreement. It is the language in the agreement and the way the rights are divided that is the key to the contract. When you analyze your agreements (or ask me to do it) always keep in mind who has control over the property. This will be vital when your idea becomes a movie.

Best

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT gamalhennessy@gmail.com FOR A FREE CONSULTATION.